ASIC places stop orders on BT funds over non-compliant TMDs

The Australian Securities and Investments Commission (ASIC) has placed interim stop orders on three funds from Advance Asset Management, the specialist asset management business of BT Financial Group.

The stop orders prevent Advance from offering or distributing the three funds to retail investors and have been issued due to non-compliant target market determinations (TMDs).

The affected funds held a combined $4.2 billion in assets under management: the Advance Balanced Multi-Blend Fund ($1.7 billion), the Advance International Shares Multi-Blend Fund ($1.4 billion), and the Advance Property Securities Multi-Blend Fund ($1.1 billion).

In a statement released on Friday, ASIC said that it had made the orders to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs.

“ASIC considered that the approach taken by Advance did not meet the appropriateness requirements under the design and distribution obligations (DDO),” the regulator said.

“ASIC considered that the TMDs were very broadly drafted and failed to define key concepts.”

As an example, Advance described investors in the target market for the Advance Balanced Multi-Blend Fund as having the tolerance to invest at the “medium to higher” end.

Additionally, Advance described investors in the target markets for both the Advance International Shares Multi-Blend Fund and Advance Property Securities Multi-Blend Fund as having the tolerance to invest at the “higher end of the risk spectrum”.

However, ASIC noted that Advance failed to define what these concepts meant and, as a result, it was “therefore not possible to accurately determine which retail investors fall within the target market for each fund”.

Furthermore, the regulator also considered the distribution conditions outlined in the TMDs to be inadequate and said that they failed to specify the information that distributors must report to Advance so that Advance can determine whether a review trigger has occurred, the period for reporting this information to Advance, and the review triggers for the TMDs.

“ASIC expects Advance to consider the concerns raised about the TMDs and take immediate steps to ensure compliance,” the regulator said.

The orders were served to Advance on 14 March and are valid for 21 days unless revoked earlier. They stop the firm from issuing interests in, giving a product disclosure statement for or providing general advice to retail clients recommending investment in the funds.

“ASIC will consider making final orders if the concerns are not addressed in a timely manner. Advance will have an opportunity to make submissions to ASIC before any final stop orders are made,” the regulator noted.

Twenty-seven DDO interim stop orders have been issued by ASIC to date, of which 19 have been lifted following actions taken by the entities to address the regulator’s concerns or where the products were withdrawn. Meanwhile, the other eight still remain in place.